Australia at the Crossroads of Globalization

A decade ago, Woolloomooloo Wharf stood as a derelict eyesore
from an earlier era. Now it glitters with a Taj hotel, a top
restaurant, and loft-style condominiums popular with actors like
Russell Crowe. Indeed, Sydney's waterfront is thriving, boasting
amenities such as doggie day care, $10 lattes, and a superyacht
marina.

For 15 years, Australia has grown at an average 3.7 percent clip
without any sign of recession. The stock market is up 37 percent
this year, and, last week, registered a record number of trades. The
boom has slashed unemployment, doubled the country's wealth, and
taken care of all but pocket change on its debt.

The success has bolstered the political fortunes of Prime
Minister John Howard, who just marked 10 years in power. Yet it goes
deeper than one man's stewardship. Few countries have better
leveraged globalization than Australia - transforming a once-
isolated market into one that's taking full advantage of Asia's, and
particularly China's, dynamism.

"Globalization does have winners and losers, but mostly we're a
winner," says John Edwards, chief economist with HSBC Bank Australia
Ltd. in Sydney. "When farmers in Korea protest against
globalization, or miners in Germany protest globalization, they're
protesting against us."

Australia's winning recipe does not hew to a hard-line economic
libertarianism. Government turned to labor unions to help secure
productivity gains, and Australia maintains one of the world's
highest minimum wages, for instance.

At the turn of the 20th century, Australians were the richest
people on the earth - a result of piles of gold and natural
resources. But that advantage gradually eroded, until high
unemployment and soaring inflation in the early 1980s convinced a
left-leaning government to ditch protectionist policies and force
Australian businesses to compete globally.

What followed was "an astounding period of reform," says Mr.
Edwards.

The Australian dollar was floated in 1983, and trade tariffs -
from clothing, auto, and wool industries - were slowly dismantled.
The banking sector opened to foreign companies, seeding what would
become a vibrant investment banking community - one of the
pioneering industries here now, along with international education.

Major state-owned firms were privatized. While the selling of the
phone company and the national airline still rankles some who say
service has declined, the move also inspired many ordinary people to
become shareholders in the companies. Today, 55 percent of adults
here own stocks - the highest comparable rate in the world, says a
national exchange spokesman. That is not counting any of the
retirement accounts requiring workers to deposit 9 percent of income
- some in stocks - now mandated by the government.

Higher wages, once granted easily by the government, now involve
horse trades with unions. This, along with new technologies, kicked
off dramatic gains in productivity.

For the most part, reformers have kept voters on board by
sticking to the notion of the "fair go." This deeply held Aussie
value means looking out for those at the bottom of the heap. Through
all the reforms, Australia has continued to set minimum wages per
industry. Benefits like healthcare, pensions, and prescription drugs
are also means tested, directing more to the poor than the wealthy.

"The safety net that Australia has, which is not as generous as
Europe's, has been arguably more effective at providing a cushion
under those who have been adversely affected by economic changes,"
says Saul Eslake, chief economist with ANZ Bank in Melbourne.

Tax cuts have also been left out of the pro-growth playbook. …

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